Decentralized financial DeFi has become popular, and while gradually impacting the centralized financial system of the currency circle, the status of centralized exchanges has also been affected to some extent by the emergence of DEX (decentralized exchange). For investors who have already participated in staking funds such as Uniswap and Balancer to earn income, DEX is no longer a new thing. However, if you ask DEX users around you, are they willing to transfer most of their transactions on centralized exchanges to DEX? I believe that most people’s answer will be unwilling. What is the reason behind it? Why does Serum have the opportunity to become everyone’s DEX first choice, and even have the opportunity to transfer most of their existing transactions from centralized exchanges?
Objective data show that DeFi and DEX continue to grow
If the DeFi market needs to continue to expand, continued growth in the number of participants is necessary. Similarly, DEX needs to continue to grow, and trading volume must rise accordingly. Dune Analytics data shows that the number of global DeFi users in August this year has exceeded 350,000, which is an increase of more than 7 times compared with less than 50,000 in January.
Figure 1: Number of DeFi users worldwide
Source: Dune Analytics
At the same time, the trading volume of major DEX has also reached a new high. Based on the transaction data of major DEX, the current weekly transaction amount of DEX has exceeded 2.5 billion US dollars. Even though there was a slight adjustment in the transaction amount from the end of July to the beginning of August this year, the rebound rate in August was very fast, which is enough to reflect that the market’s interest in DEX has not diminished, but has continued to increase.
Figure 2: Weekly turnover of major DEX
Source: Dune Analytics
Since DeFi and even DEX are so popular, why are most transactions in the market still conducted on centralized exchanges? Why is trading on DEX still not accepted by the public? I believe there must be a reason for this. But why is it said that DeFi rookie Serum DEX has the opportunity to seize the market share of centralized exchanges?
1. The high-performance Solana public chain brings a centralized transaction experience to Serum users
Users who have traded on DEX should know that the trading method of DEX is actually not much different from the exchange of goods. Although the essence of trading is to exchange goods, users do not have much control over the transaction process when trading on DEX, and they cannot know the market information during the transaction from the DEX platform. But Serum’s trading experience is different from the existing DEX. Because it is built on the Solana public chain, its performance is much higher than that of the Ethereum public chain, and the data transmission speed can reach 710,000 transactions per second, which is much higher than the current Bi-Ethereum chain, and even faster than the upcoming Ethereum 2.0 is even faster. This speed is enough to support a complete transaction engine and order book to operate on the chain, bringing a better user experience.
Figure 3: Serum DEX client interface has a complete order book
2. Serum can support derivatives trading
Because Serum has a high-performance Solana public chain as its foundation, it can support the trading of derivatives on the chain, which is currently not possible for other DEXs built on the Ethereum public chain. One of the reasons is also that the data transmission speed of Ethereum is not enough to meet the requirements of contract or option transactions. To a certain extent, derivatives trading is still an area where centralized exchanges have more advantages than decentralized exchanges. In terms of product selection, market depth, and liquidity, centralized exchanges are still better than decentralized exchanges. So more ideal. However, the emergence of Serum can hit the pain points of existing DEX, giving investors more choices.
3. Lower transaction costs
Anyone who has used the DeFi protocol to conduct transactions should know that every action performed on Ethereum, whether it is to trade assets in DEX or pledge or redeem in a fund pool, requires transaction fees. Such high transaction fees naturally make high-frequency traders feel very headache.
Figure 4: Ethereum total transaction fees
Data from Glassnode shows that in August of this year, more than 20,000 ETH was used to pay transaction fees on Ethereum, setting a record high. The main reason is the increasing demand on the chain, but it is believed that this figure also discourages many users who are accustomed to using centralized exchanges. However, the emergence of Serum seems to be reversed. It is understood that Serum has successfully completed the transaction at a fee of $0.0001 during the testing phase. I believe this is just the beginning.
4. Serum cross-chain protocol to achieve true decentralization
Since different blockchains mostly use different protocols and technologies in the initial stage of establishment, it is difficult for different chains to communicate with each other. As the industry flourishes, there are already many decentralized projects in the market that also hope to implement cross-chain agreements, but they generally rely on a centralized oracle to complete it, but this seems to have a huge conflict with the original intention of DeFi decentralization. However, Serum can perform cross-chain asset transactions through smart contracts on the chain without relying on any trust mechanism, achieving complete decentralization. This is something other DEX has not done yet.
5. Serum is not just DEX, it is the entire ecosystem
There is no doubt that the business model of centralized exchanges is focused on transactions and products. They are generally more passive about potential new projects or projects that have potential but are still in the initial stage. Investors who buy and sell through exchanges Except through pre-sale (IE0), it is generally difficult to get involved in these projects. However, Serum’s model seems to be different from other DEX and other trading platforms. Their determination to promote the construction of the entire DeFi community is very obvious, and they set up special funds to fund potential projects and use the infrastructure of Serum and Solana to help them grow. Investors can also indirectly invest in these new projects by holding Serum’s native token SRM.
Figure 5: Serum consultant Sam Bankman-Fried released the EcoSerum project funding plan
to sum up
Decentralization seems to be an irreversible trend. The official launch of Serum seems to mark the real beginning of centralized exchanges to embrace the DeFi world. As we can see on Serum’s official website, Serum has a very large ecosystem and a number of partners, including FTX, Binance, Okex, Gate.io and other global leading centralized exchanges. The author believes that as the DeFi front continues to be hot, other centralized exchanges are likely to follow, but Serum, which has a first-mover advantage, believes that it can continue to innovate in this field. The future of DeFi world must be even more exciting!